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Gymboree's Crazy 8 Expansion Is a Remarkably Sane Business Plan

Children's apparel retailer Gymboree Corp. (GYMB) gets that that consumers aren't going to stop looking for deals any time soon. That's why the company will step up the expansion of its value brand, Crazy 8, this year, nearly doubling the concept's store count in 12 months during a time when most retailers aren't offering ambitious expansion plans.
Gymboree current operates 65 Crazy 8 units; management expects to open between 75 and 100 new locations this year, up from the 50 originally planned. The same number of openings for the concept, which offers price points about 30 percent lower than Gymboree's namesake stores, are scheduled for 2011.

The time for expansion is right, CEO Matthew McCauley told the San Francisco Business Times, because of a cost-conscious consumer, lower construction costs and cheaper rents. "It is in our best interest to open as many stores as we can right now," he said.

Besides good timing, Wall Street likes the move because it gives Gymboree a new growth avenue, especially after its namesake chain is close to maxed out with just over 630 stores. "The announcement of Crazy 8 store openings breathes new life into the Gymboree story," said MKM Partners analyst Linda Tsai.

Gymboree's not the only retailer finding this environment suitable for the expansion of a lower-priced concept. Department stores such as Saks (SKS) see their outlet-store chains as primary growth drivers. Dollar stores are growing like crazy. And other specialty apparel chains, like Rue21 (RUE), see room for expansion as well.

Sure, Crazy 8 is not without its obstacles. In the company's recently released annual report, Gymboree acknowledges that it faces competition from Old Navy and discounters such as Walmart (WMT) and Target (TGT). But who in low-priced apparel doesn't have to deal with those mega chains?

The age bracket Crazy 8 serves might be the most compelling argument for its expansion. Young children rapidly grow out of their clothing, and parents aren't likely to pass up a strong brand that offers value.
Image by Flickr user loop_oh.